This article has been written by Oishika Banerji of Amity Law School, Kolkata. This article provides a detailed analysis of a gentleman’s agreement which is generally resorted to for carrying out trade or other such obligations.
Table of Contents
Introduction
Gentlemen’s agreements are unwritten, informal agreements between two parties to carry out a trade or other obligation. These agreements are not legally enforceable, but they are supported by the participants and their social networks’ integrity, social standards, and peer pressure. Despite its more informal nature, a breach of a gentleman’s agreement can have a detrimental impact on commercial ties if one side breaks their word. A gentleman’s agreement (also spelled “gentlemen’s agreement”) may or may not be consummated by a handshake. This article provides a detailed analysis of gentleman’s agreement in general.
What is a gentleman’s agreement
The tolerance of two or more parties for the fulfilment of expressed or unwritten responsibilities is the basis of a gentleman’s agreement, which is more of a point of honour and etiquette. If a gentleman’s agreement is breached, there is no court-administered restitution, unlike a binding contract or legal arrangement. Nonetheless, societal forces and standards contribute to the continued existence of gentlemen’s agreements. Indeed, the long-term consequences of breaking such an agreement can be far more damaging than any monetary benefit. In such a circumstance, the trust may rapidly be damaged and few people will want to enter into business with somebody with a reputation for reneging.
A gentlemen’s agreement can be presented to complete a transaction between two or more parties without the requirement for regulatory scrutiny or a trusted third-party enforcer like a court or judge. This can save transaction costs while also allowing for more flexibility in deal reconciliation. ‘Informal agreement,’ ‘unspoken agreement,’ ‘handshake agreement,’ ‘Pactum’ (Latin for pact), ‘verbal agreement,’ ‘tacit agreement,’ or ‘unwritten agreement’, are other synonyms for a gentlemen’s (gentleman’s) agreement.
In commercial treaties and international relations, gentlemen’s agreements can be found. The Gentlemen’s Agreement of 1907, for example, saw the United States and the Empire of Japan address Japanese immigration and the terrible treatment of Japanese immigrants already in the United States. The pact, which was never confirmed by Congress, saw Japan pledge to stop issuing passports to anyone seeking labour in the United States. In response, the United States would no longer tolerate discrimination and segregation against Japanese residents living in the country.
Tales behind the gentleman’s agreement
In the 1800s and early 1900s, gentlemen’s agreements between business and the US government were prevalent. However, several regulators concluded that there was widespread coordination and unethical commercial practises. In 1903, the Bureau of Corporations was established as a forerunner of the Federal Trade Commission (FTC) to examine monopolistic behaviour. In certain situations, new gentlemen’s agreements were formed, in which Wall Street bankers, such as J.P. Morgan and his “House of Morgan,” would meet with the bureau itself to obtain advance approval on mergers and takeovers. The gentlemen’s agreement, for example, allowed United States Steel Corporation to become the world’s first billion-dollar business by allowing regulators and the President to ignore the Sherman Antitrust Act, 1890. A financial crisis erupted in 1907 as a result of a stock market panic thereby affecting many major investment banks. Because of the panic, President Theodore Roosevelt collaborated with J.P. Morgan to merge banks in the hopes of averting a wider disaster. Similarly, in 1907, Morgan collaborated informally with Roosevelt to construct a gentlemen’s agreement that would allow U.S. Steel to buy its major competitor, Tennessee Coal and Iron, in violation of the Sherman Act.
Gentlemen’s agreements were a widespread discriminatory strategy in the United States, apparently more common than restrictive covenants in maintaining the homogeneity of upper-class communities and suburbs. These agreements were exceedingly difficult to establish or follow due to their nature, and they remained in existence even after the Supreme Court’s findings in Shelley v. Kraemer (1948) and Barrows v. Jackson (1953). Gentlemen’s agreements ‘undoubtedly still exist,’ according to one source, although their use has considerably decreased.
Gentlemen’s Agreement of 1907 : an insight
- The Gentlemen’s Agreement of 1907 was an informal agreement between Japan and the United States (1907-1908) that restricted Japanese immigration in return for the desegregation of San Francisco’s public schools. It represented President Theodore Roosevelt’s diplomatic efforts to pacify a proud Japanese government and address California’s rising anti-Japanese sentiment.
- The San Francisco Board of Education separated all pupils of Japanese ancestry to “the Oriental Public School for Chinese, Japanese, and Koreans“ on April 18, 1906. Japanese-Americans were furious at what they saw as a violation of the Treaty of Paris, 1894, which promised them the right to immigrate. As the situation worsened, the Japanese and US governments intervened to maintain diplomatic peace. President Roosevelt intervened, appointing Secretary of Commerce and Labor Victor H. Metcalf to examine the problem, fearful of offending a growing international power in the aftermath of Japan’s victory in the Russo-Japanese War (1904–1905). With the exception of a few overage pupils, Metcalf’s investigation found no need for segregation.
- Despite Roosevelt’s opposition to the segregation order, the federal government was legally vulnerable, as the Plessy v. Ferguson (1896) decision had already established the “separate but equal” concept. The federal government opted to focus on the forty-one immigrant pupils who were in the right grade for their age in order to fight the segregation order in court. The local Japanese counsel agreed that the twenty-seven overage students did not need to be considered and that there was nothing that could be done about the other twenty-five American citizens. The federal government was prepared to pursue action, armed with a section of the Treaty of Commerce and Navigation between Japan and the United States, 1894, that provided reciprocal “most favoured nation” rights of residency to people of both countries.
- Roosevelt and Secretary of State Elihu Root, however, favoured a political solution that satisfied both the Japanese government and Californian public opinion. Roosevelt made it plain that the “only way to avoid perpetual conflict” between the two nations was to ban “all immigration of Japanese working males,” a compromise the Japanese government was ready to accept in order to avoid a Japanese equivalent of the Chinese Exclusion Act, 1882.
- Roosevelt and Root met with San Francisco school administrators and California legislative leaders on February 8, 1907, to work out a deal. California officials agreed to restore Japanese students if they were under the age of 18, while the federal government dropped its litigation and pledged to restrict Japanese labour immigration. The Japanese agreed to cease giving passports to labourers travelling to the United States mainland. Returning labourers, as well as the “parents, spouses, and children of labourers already residing there,” were to be awarded passports.
- In 1907, US negotiators reached a gentlemen’s agreement that limited Japanese immigration to the United States. In exchange, President Roosevelt agreed to repeal a San Francisco law that separated Japanese children from white students.
Gentlemen’s Agreement of 1956
The Andhra Pradesh Gentlemen’s Agreement of 1956 was signed by Telangana and Andhra Pradesh politicians prior to the creation of the Indian state of Andhra Pradesh on February 20, 1956. The agreement included provisions to prevent the government of Andhra Pradesh from discriminating against Telangana. Violations of this agreement were cited as one of the grounds for the formation of separate statehood for Telangana. A Gentlemen’s Agreement was signed between the leaders of Andhra Pradesh and Telangana, which included a 60:40 cabinet split, the reservation of the post of Deputy Chief Minister for Telangana if the Chief Minister was from Andhra Pradesh, the formation of a Telangana Regional Council, and the reservation of public sector jobs for Mulkis (erstwhile residents of the Hyderabad).
States Reorganisation Commission (SRC), in 1955, recommended that “the Telangana area is to be formed into a separate State, which may be known as the Hyderabad State, with provision for its unification with Andhra Pradesh after the general elections likely to be held in or about 1961, if the legislature of the residency Hyderabad State expresses itself in favour of such unification by a two-thirds majority.”
The Public Employment (Residence Requirement) Act was passed in 1957 as a result of this agreement. Meanwhile, the SRC’s concerns were justified. The coastal area was pleased to have Hyderabad as its capital, but because of their stronghold in the Congress party and administration, the stipulations of the Gentleman’s Agreement were disregarded, and within a decade, the movement for a separate Telangana garnered widespread support thereby declaring Telangana to be a state in 2014.
Functioning of a Gentleman’s Agreement
In international trade and relations, as well as most sectors, gentlemen’s agreements are frequent. Gentlemen’s agreements were particularly common during the dawn of the industrial age and far into the first half of the twentieth century when legislation lagged behind new economic practises. Steel, iron, water, and tobacco sectors, among others, have been shown to employ such agreements to control pricing and limit competition.
Gentlemen’s agreements have developed to govern international operations such as monetary and trade policy cooperation. It is also described as “an international phrase for an agreement established verbally rather than in writing, although entirely legally legitimate,” according to Edmund Osmaczyk in the Encyclopedia of the United Nations and International Agreements. This sort of arrangement can let a country bypass the domestic legal requirements of signing a formal treaty, or it can help a government enter into a secret pact that is not binding on the future administration. According to another source, all international accords are gentlemen’s agreements since they are all unenforceable unless in the event of war.
Limitations of a Gentleman’s Agreement
In the worst-case scenario, a gentlemen’s agreement might be used to engage in anti-competitive behaviour like price-fixing or trade quotas. Because a gentleman’s agreement is not written down as a legal, enforceable contract, it can be used to make and enforce unlawful regulations. Consumers may face higher pricing or worse quality items as a result of this. Worse yet, a gentlemen’s agreement may be used as a means to promote discriminatory practices, such as in an “old boy’s network.” Gentlemen’s agreements lack the same legal and regulatory safeguards as formal contracts since the former are informal and generally not written down. As a result, they are more difficult to enforce.
Is a Gentleman’s Agreement legally binding?
Every time someone buys a drink from a newsagent or a t-shirt from a high-street business, they are entering into a consumer contract to buy products, in the legal language. Even if there is no formal contract in place, the contract’s provisions are nevertheless binding. One reason for this is that as consumer contracts are backed by a complicated legal framework, an individual, as a customer, automatically has rights that he/she may not be aware of. However, there are situations when a ‘Gentleman’s Agreement’ is formed (i.e., no written contracts are put into), but there are no clear statutory or other legal processes in place to guarantee the enforcement of the agreement terms, usually in the context of business-to-business dealings.
From a legal perspective, a “Gentleman’s Agreement” is an oral contract that has arisen between two parties. This implies that the contract’s terms and conditions aren’t written down, which means they can’t always be proven. This does not rule out the possibility of those provisions being enforced, nevertheless, a contract does not have to be in writing to be legally binding. Wherever the following factors are present, a legal contract can be formed:
- One party makes an offer, which is accepted by another,
- There is an intention to establish legal relations between the parties, and
- There is a “consideration” factor (i.e. the parties each exchange something in value, such as payment of money in exchange for a promise to perform services).
There will be no legally enforceable contract if none of these aforementioned factors are present. As a result, it’s easy to understand how oral contracts, often known as ‘Gentleman’s Agreements,’ may be legally enforceable. Proving that each of the formation factors has emerged in an oral contract, on the other hand, might be challenging, posing a danger to an individual’s company. Therefore, it is recommended to have these agreements in place since having explicitly stated contract conditions in place between firms helps businesses to clearly demonstrate that the formation criteria have been met.
Conclusion
In today’s world, a gentleman’s handshake is usually just a handshake. It is no longer regarded as a method for two parties to negotiate a contract. Specifically, because most individuals nowadays don’t trust other people’s statements, because intentions change so frequently, especially in the corporate world. Business is often conducted nowadays through the use of structured contracts, written contracts, the engagement of attorneys, and the actual meeting of both parties to produce a binding contract. We no longer rely on the gentleman’s handshake as a codified agreement because people change their minds, people break their promises, and one’s word is not nearly as solid or reliable as it was during the times of aristocracy and medieval ages. In today’s commercial conversations and contracts, the handshake is still employed. With this in mind, the handshake’s value and importance have been reduced to a simple demonstration of good faith in which both parties intend to carry out the contract’s requirements. It is no longer the norm for two parties to agree on contract terms that they would like to have enforced in a legal setting or environment in today’s highly legalized field of contract negotiations and deal-making, and it is no longer legally binding when it comes to two parties agreeing on contract terms that they would like to have enforced in a legal setting or environment.
References
- https://www.briffa.com/blog/is-a-gentlemans-agreement-legally-binding/.
- https://www.theguardian.com/media/2006/feb/02/broadcasting.sport.
- https://www.history.com/topics/immigration/gentlemens-agreement.
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